Zachary Wasserman
Senior Executive Vice President, Chief Financial Officer at Huntington Bancshares
Thanks, Steve, and good morning, everyone. Slide 6 provides highlights of our fourth quarter results. We reported GAAP earnings per common share of $0.42 and adjusted EPS was $0.43. Return on tangible common equity or ROTCE came in at 26% for the quarter. Adjusted for notable items, ROTCE was 26.5%. Further adjusting for AOCI, ROTCE was 19.8%.
Loan balances continued to expand, as total loans increased by $1.9 billion and excluding PPP, increased by $2.1 billion. Deposit balances increased by $1.6 billion on an end-of-period basis, while average deposits were essentially flat compared to the prior quarter. Pre-provision net revenue expanded sequentially by 4.2% from last quarter to $893 million and on a full-year basis, year-over-year, increased by 36% to $3.2 billion. Credit quality remained strong with net charge-offs of 17 basis points and nonperforming assets declining to 50 basis points.
Turning to Slide 7. Average loan balances increased 1.7% quarter-over quarter, driven by both commercial and consumer loans. Commercial loans continued to represent the majority of loan growth. Within commercial, excluding PPP average loans increased by $1.9 billion or 2.7% from the prior quarter. Primary components of this commercial growth included distribution finance, which increased $900 million tied to continued normalization of dealer inventory levels as well as seasonality with shipments of winter equipment arriving to dealers. We also saw the continued long-term trend of demand within our asset finance businesses, which drove balances $300 million higher in the quarter. Commercial real-estate balances increased by $500 million, largely as a result of production late in the third-quarter and lower prepays. End-of-period balances were higher by $180 million.
Auto Floorplan utilization continued to normalize, which drove balances higher by $300 million. Additional increases in line utilization over time represents a substantial ongoing opportunity. We also saw higher balances in specialty verticals such as mid-corporate and tech and telecom, which were offset by lower balances in other areas as a result of our return optimization initiatives. In consumer, growth was led by residential mortgage, which increased by $500 million, as on-sheet production outpaced run-off and was supported by slower prepaid speeds. Partially offsetting this growth were lower auto balances, which declined by $230 million and RV/marine, which declined by $50 million.
Turning to Slide 8. We delivered $1.6 billion of deposit growth for the quarter and $4.6 billion for the year, on an ending basis. On an average basis, deposits were lower by two-tenths of 1% while increasing 2.4% year-over-year. Competition for deposits has intensified beginning in earnest in September and continuing into the fourth quarter. Notwithstanding that, we were pleased with the traction we saw over the course of the quarter as our teams delivered robust production, demonstrating the deposit-gathering capabilities across the bank. Ending deposit growth was led by consumer, which increased by $1.6 billion. We saw a mix shift in line with our expectations, including incremental growth in both money market and time deposits.
We continue to remain disciplined on deposit pricing with our total cost of deposits coming in at 64 basis points for the fourth quarter. We will remain dynamic, balancing core deposit growth in the competitive rate environment and the utilization of a broad range of funding options.
On Slide 9, we reported another quarter of sequential expansion of both net interest income and NIM. Core net interest income excluding PPP and purchase accounting accretion, increased by $67 million or 5% to $1,459 million. Net interest margin expanded 10 basis points on a GAAP basis from the prior quarter and expanded 11 basis points on a core basis, excluding accretion.
Slide 10 highlights our high-quality deposit base and diversified funding profile. For the current cycle-to-date, our beta on total cost of deposits was 17%. As we have noted, we expect deposit rates to continue to trend higher from here over the course of the rate cycle. Overall, our beta continues to track to our expectations.
Turning to Slide 11. Throughout 2022, we were deliberate in managing the balance sheet to benefit from asset sensitivity. We also incrementally added to our hedging program to manage possible downside rate risks over the longer-term. During the quarter, we executed a net $3.2 billion of received fixed swaps and $800 million of forward starting swaps and colors [Phonetic]. At this point based on the current rate outlook and yield curve opportunities, we believe we have optimized the size of the program. We are comfortable with our position today, as we balance near-term costs versus longer-term protection. As always, we will be dynamic as we monitor the outlook and the yield curve. We maintain unused hedge capacity that we could deploy should the curve revert and/or steepen to a level where we would add incremental downside rate protection hedges.
On the securities portfolio, we saw another step-up in reported yields quarter-over quarter. We are benefiting from reinvestment as well as the hedge strategy to protect capital. We will continue to reinvest cash flows of approximately $1 billion each quarter at attractive new purchase yields around 5%.
Moving to Slide 12. Noninterest income was $499 million, up $1 million from last quarter. We drove record activity within our capital markets businesses during the quarter and throughout 2022. Capstone continued to perform well and our underlying capital markets businesses outside of Capstone, finished the year strong, up 26% year-over-year. We remain pleased with the client engagement we are seeing in the wealth management business with another positive quarter of net asset flows.
On a year-over-year basis, we saw lower mortgage banking income as a result of the higher rate environment and from lower deposit service charges from Fair Play enhancements we implemented during 2022. Offsetting these factors were higher capital markets revenues and payments revenues. Importantly, we're executing on our strategy to drive higher-value revenue streams and our fee mix continues to trend favorably.
Moving on to Slide 13. GAAP noninterest expense increased $24 million compared to the prior quarter. Adjusted for notable items, core expenses increased by $19 million. This quarterly increase in core expenses was primarily the result of revenue-driven compensation, tied to capital markets production. Additionally, we saw a seasonally higher medical claims in the quarter, which increased by $16 million. Underlying these results, core expenses were well-controlled, demonstrating our commitment to disciplined expense management.
Slide 14 recaps our capital position. Common equity Tier-1 increased to 9.44%. Our tangible common equity ratio or TCE increased to 5.55%. Adjusting for AOCI, our TCE ratio was 7.3%. We ended the year having delivered on our plan to drive common equity Tier-1 to the middle of our 9% to 10% operating range. Going forward, our capital priorities have not changed: fund organic growth, support our dividend and provide capacity for all other uses, including share repurchases. After having held back on share repurchases for the last several quarters, our expectation is that over the course of 2023 and beyond, we will now return to a more normalized capital distribution mix, including share repurchases. Our Board has authorized a $1 billion share repurchase program through the end of 2024.
Given the current economic outlook, our thinking is that we will not actively repurchase shares during the first half of 2023 as we watch the path of the economy. This may result in capital ratios, continuing to expand in the near-term. We like the flexibility the program provides. And we believe it is prudent to maintain an authorized share repurchase program as part of our overall capital management framework.
On Slide 15. Credit quality continues to perform very well. As mentioned, net charge-offs were 17 basis points for the quarter. This was higher than last quarter by 2 basis points and up 5 basis points from the prior year as credit performance continues to normalize. Nonperforming assets declined from the previous quarter and have reduced for six consecutive quarters. Criticized loans have similarly improved for four consecutive quarters. Allowance for credit losses was up slightly, driving the coverage ratio higher to 1.9% of total loans.
Turning to Slide 16. You will note a strong reserve position. As I mentioned, the portfolio has continued to perform extraordinarily well. And we believe our disciplined approach to credit through the cycle underpins the overall strength of our balance sheet. We were pleased to update our medium-term financial targets at Investor Day in November, and these form the foundation of our expectations over our strategic planning horizon. We believe these metrics are at the core of value-creation, profit growth, return on capital and the commitment to drive positive annual operating leverage.
Turning to Slide 18. Let me share some thoughts on our 2023 outlook. As we discussed at Investor Day, we analyze multiple potential economic scenarios to project financial performance and develop management action plans. Our targets are anchored on a baseline scenario that is informed by the consensus economic outlook and the forward yield curve as of December 31. The baseline assumes a mild recession in 2023 with modest net GDP growth for the full year. The economy is expected to exit the year on the path toward recovery with inflation gradually subsiding. Since Investor Day, the economic outlook is incrementally worse, and it's likely at the lower-end of the baseline scenario outcomes. Our baseline outlook for 2023 is for average loans to grow between 5% and 7% led by commercial with more modest growth in consumer. We will continue to focus on optimizing for returns and driving loan expansion in select areas.
Deposits are expected to increase between 1% and 4%, reflecting continued growth and deepening of customer and primary bank relationships. Net interest income is expected to increase between 8% and 11% driven by continued earning asset growth and expanded full-year net interest margin. Noninterest income is projected to be approximately flat. We expect continued robust performance from our areas of strategic focus, capital markets, payments and wealth management.
During 2023, several other factors are offsetting that growth, including our anticipated holding of the majority of our SBA loan production on sheet, thereby, reducing near-term fee revenue in favor of a longer-term high-return spread revenue, lower-income of approximately $23 million associated with purchase accounting accretion in fees. Please refer to Slide 30 for more details.
Lower operating lease revenue. As we continue to transition to more capital leases, importantly, we expect this will result in lower operating lease depreciation expense as well, lower mortgage banking income for the full-year 2023 versus 2022. And finally, in light of the economic outlook, we are implementing risk mitigating deposit policy changes that will result in a lower incidence of overdrafts and related service charges. In addition, we are reducing NSF fees to zero in the first quarter. This will result in an approximate $5 million reduction in fee income per quarter, which we expect to be more than offset by lower associated charge-offs.
As you know, the first quarter is generally a seasonal low for overall fee income. We expect fee income will grow sequentially throughout the remainder of the year. On expenses, as Steve noted, we intend to hold growth to a low-level given the environment. Even as we remain committed to funding critical long-term investments, we plan to manage core underlying expense growth between 2% and 4% for the full year. This level of expense growth benefits from the ongoing efficiency initiatives we've discussed previously, such as operation accelerate, branch optimization and the organizational alignment actions that Steve highlighted. Added to the core expense growth, we expect approximately $60 million higher expenses from the full-year run rate of Capstone and Torana and $33 million of increased FDIC insurance expense associated with the surcharge. In addition, we expect the first half of the year to include some amount of restructuring charges associated with the expense management actions we are taking. We will provide more details about these actions later in the quarter.
Overall, our low expense growth coupled with expanded revenues, is expected to support another year of positive operating leverage. We expect net charge-offs will be on the low end of our long-term through-the-cycle range of 25 basis points to 45 basis points. Our 2023 guidance reflects the current macroeconomic outlook. We will continue to be diligent in analyzing the macro environment and will react as needed to manage as the year plays out. We ended 2022 in a position of strength and have good momentum. We have every expectation of continuing to outperform this year.
With that, we will conclude our prepared remarks and move to questions and answers. Tim, over to you.
